Fitch cuts US credit rating to AA+

NEW YORK — Credit rating agency Fitch on Tuesday downgraded the US government's credit rating over concerns about a "growing debt burden" and "an erosion of governance".

Fitch, one of three major independent agencies that assess creditworthiness, lowered the US credit rating from AAA to AA+.

The Fitch downgrade cited fiscal deterioration over the next three years and repeated down-the-wire debt ceiling negotiations that threaten the government's ability to pay its bills.

Fitch first flagged the possibility of a downgrade in May, then maintained that position in June after the debt ceiling crisis was resolved, saying it intended to finalize the review in the third quarter of this year.

With the downgrade, it became the second major rating agency after Standard & Poor's to strip the United States of its triple-A rating.

Fitch's move came two months after Democratic President Joe Biden and the Republican-controlled House of Representatives reached a debt ceiling agreement that lifted the government's $31.4 trillion borrowing limit, ending months of political brinkmanship.

"In Fitch's view, there has been a steady deterioration in standards of governance over the last 20 years, including on fiscal and debt matters, notwithstanding the June bipartisan agreement to suspend the debt limit until January 2025," the agency said in a statement.

In response, Treasury Secretary Janet Yellen said in a separate statement that she "strongly" disagreed with the downgrade, calling it "arbitrary and based on outdated data".

The White House had a similar view, saying it "strongly disagrees with this decision".

Fitch said repeated political standoffs and last-minute resolutions over the debt limit have eroded confidence in fiscal management.

British stocks plunged on Wednesday morning after the Fitch downgrade. The FTSE 100 index, the leading benchmark for blue chip companies listed in Britain, slumped by more than 1.8 percent to 7,522.24 for some time.

"Fitch highlighted concerns over worsening fiscal conditions over the coming three years, but also brought questions of governance into the spotlight," said Sophie Lund-Yates, lead equity analyst at financial services company Hargreaves Lansdown.

It is true that this move by Fitch is somewhat based on outdated data, but the language it used has not stopped the stock market from reacting, Lund-Yates added.

In May, Fitch placed US credit on negative watch, which the agency said, "reflects increased political partisanship that is hindering reaching a resolution to raise or suspend the debt limit" ahead of a looming deadline.

Xinhua